B7/CD28 costimulation is required to generate functional mature CD4+CD25+Foxp3+ regulatory T cells in the thymus. However, its not known whether B7/CD28 costimulation is also required to maintain regulatory function in the periphery. We developed an experimental system in which B7/CD28 costimulation was available in the thymus to induce the generation of Foxp3+ Treg cells, but B7/CD28 costimulation was absent from the periphery where Treg cells resided. We discovered that persistent costimulation in peripheral lymphoid organ is required to maintain Treg cell hyporesponsiveness and regulatory function through maintaining high level CTLA-4 expression in Tregs. We also found that CTLA-4 in Tregs is closely localized under the cytoplasmic membrane and this unique distribution facilitates its efficient inhibition of TCR signaling and contributes to the induction of hyporesponsiveness and regulatory function in Tregs. Our results indicate that maintaining high level expression of CTLA-4 in Tregs by persistent costimulation is critical for Treg cell function.